What You Weren’t Told About the Utility Sale

From the very beginning, LHCC members have not been told the whole truth about the Utility sale.

Chris Allison has led members to believe that we are trying to block the sale of the Utility. That’s simply not true. We do not believe it is good business to invest nearly $1.5 million in an asset and then shortly thereafter sell it for much less. Unfortunately, although we believe it is a bad deal, it also a done deal. There is a binding contract in place between the parties. It’s informative to look at some important provisions of this contract to see just why it’s such a bad deal as it is currently proposed.

In February of 2006, Chris Allison wrote that the utility sale “results in nearly 2 1/2 million to LHCC….” But he omitted that almost 50% of this amount is contingent on an aggressive building program and therefore may never be received at all.

In the revised June 2006 President’s Report, Chris Allison corrected this omission without any fanfare. But he introduced a new statement that was less than the whole truth. Chris Allison wrote that the proceeds will include $720,000 of reimbursement for capital investments. But both of these numbers exclude an important deduction, as outlined on page 3 of the Asset Purchase Agreement with Aqua Virginia. The contract with Aqua Virginia provides for reimbursement for capital investments less tap fees starting August 1, 2005. (N. B. – The contract with Aqua Virginia is actually 2 contracts, 1 for the water system and 1 for the wastewater treatment system, but because the agreements are essentially identical in language we refer to them as 1 contract. The deal is structured as an asset purchase, not a stock sale.) If the sale to Aqua Virginia does not close until February of 2007, that means all tap fees paid in an 18 month period will be deducted from the capital reimbursement that is received from Aqua Virginia. Assuming 50 tap fees per 12 month period, that would be a deduction of $665,100. That’s a staggering deduction. Even if only a total of 50 tap fees are deducted, the deduction is still the huge sum of $443,400. In effect, the capital reimbursement will be significantly lower – and may be eliminated – based on the number of tap fees received. Either Chris Allison does not understand the agreement he signed or he has not accurately represented this information to members.

Proper financial planning requires an accurate understanding of how much money will be received and when it will be received. We believe the current leadership of the Association is unaware of this critical fact and that makes proper financial planning impossible. Ask a director if they understand the potential magnitude of this deduction. It’s right there in black and white.

Another aspect of the Utility sale that is often hidden from members is the impact discriminatory pricing will have on utility rates. In his February 2006 letter attacking “Mr. Murray”, Chris Allison was critical of:

those who do not want to pay their fair share of the absolutely essential expenses.

But in the Development Agreement with Miller & Smith, the Board waived utility fees for Miller & Smith in Sections 7 and 1A. Miller & Smith is not paying utility availability fees for 115 lots in Section 10 on the grounds that they are exempt from such fees under the 1984 Settlement Agreement. It’s our view that although the 1984 Settlement Agreement does provide an exemption from utility fees, including tap fees, this portion of the agreement is discriminatory. The 1984 Settlement Agreement and the Development Agreement were never reviewed and approved by the SCC. This is an important point because these agreements incorporate deviations from the Utility’s SCC-approved tariffs. We raised these issues in our own direct testimony to the SCC. In his rebuttal testimony on whether the SCC should consider the discriminatory aspects of these agreements in reviewing the sale of the Utility to Aqua Virginia, Chris Allison argued that these agreements had “no relevance to [this] proceeding….” Every homeowner at Lake Holiday will pay higher utility rates if this type of discriminatory utility pricing is tolerated. Chris Allison seems to support paying a fair share of expenses on a case-by-case basis.

The Development Agreement also contains another discriminatory concept: the Association can levy assessments on lots owned by people other than Miller & Smith to pay for expansion of the Utility system required by Miller & Smith. This is clearly stated on pages 13-14 of the Development Agreement. In this document, “LH” and “LHLLC” essentially refer to Miller & Smith, and “POA” refers to the Association. The agreement states:

Any construction required to construct, expand, or extend the Water and Sewer Treatment Facilities by LHLLC shall be paid for by POA, and may be paid to LH through assessments against POA Lots and other Lots owned by parties other than LH or builders or consumers to who such lots, previously owned by LH, have been conveyed, as outlined in Section 5.

In simple terms, the directors signed an agreement with Miller & Smith that says the Association may charge assessments against other owners for expansion required by Miller & Smith. That doesn’t sound fair. What would be fair is for Miller & Smith and every owner to contribute their fair shares for the facilities that benefit everyone.

The Association is not well served when its president tells anything less than the whole truth and promotes policies that favor one member over another.